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Financing & Cash flow are the biggest issues facing business today
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Phone = 905 829 2653
Fax = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
Business line of credit needs in Canada. Two basic alternatives emerge when your company requires revolving credit lines. One is of course the traditional commercial chartered bank solution. And number 2 and trying harder? That's when a non bank commercial ABL facility just might make more sense, or is more readily available. Let's dig in.
The aeronautical term ' maximum thrust / minimum drag ' made sense to us when it comes to the financing needs of your business. You're looking for maximum financing that won't hold you back - It's our version we guess of rocket propulsion when it comes to growth financing.
Most Canadian business owners and financial managers we talk to associated Canadian business financing with our Chartered banks in Canada. Included in this category also are U.S. banks which have charters to operate in Canada also.
But what about that # 2 and trying harder solution. It's the ABL (asset based line of credit) offered by private lenders. And in the context we're talking about 'non bank' simply refers to commercial finance companies that are not regulated under our banking rules. We suppose that means they can do what they want.
How does the business owner/manager decide which of these two solutions works for their company? Both solutions typically finance receivables and inventory. However ABL distinguishes itself by also adding your unencumbered fixed assets into the mix. Simply speaking that gives you more borrowing power.
Many companies use business credit lines to facilitate acquisitions or mergers. They are simply capitalizing on the assets of their company and the other business combined, monetizing these for additional cash flow and working capital. While the bank solution in this strategy might typically involve some level of term debt the ABL solutions is more suited to simply maximize borrowing power for the combined new firm.
Cost is often a key factor in deciding which credit facility makes more sense for your firm. If your firm can meet the fairly stringent requirements of our banks when it comes to borrowing (profitable, clean balance sheets, strong cash flow coverage, solid debt to equity) the actual cost of credit these days couldn’t be lower. ABL solutions cost more, but as we said they are more easily accessed from an approval point of view
Why does ABL cost more then? Basically that’s because non bank private lenders offering ABL solutions have a higher cost of funds. They typically also take more risk and have less stringent credit approval criteria. We would venture to say that they have higher overall expenses in running their business.
So what are in effect the approval criteria for non bank commercial private lenders when it comes to asset based finance? It's pretty basic stuff - you must have the ability to produce regular and proper financial statements, you'll need to report more often on assets such as inventory and A/R levels, and those fixed assets that are now part of your daily credit line needs will almost always need to be appraised at least once.
Does size count? We're talking about facility size of course, and ABL solutions range from 250k into the tens of millions of dollars. It goes with saying (but we'll say it anyway!) that most commercial bank facilities typically start in the 500k range with no upper limit.
Stan Prokop
business line of credit abl private lenders
